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Listing standards as a signal of IPO preparedness and quality

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  • Johan, Sofia A.

Abstract

This paper compares three aspects of IPOs on the Toronto Stock Exchange's junior (TSX-V) and senior (TSX) markets: (1) share price performance on the first day and first year, (2) volume on the first day and first year, and (3) days between the predicted IPO date, IPO announcement date and actual IPO date. The primary difference between TSX and TSX-V IPO companies is that TSX-V companies are significantly more underpriced than TSX companies, even after controlling for other company-specific factors, which suggests higher listing standards provide a signalling benefit to companies over-and-above what companies themselves are able to signal. Similarly, TSX companies experience a shorter time from IPO announcement date to an accurately predicted actual IPO date, suggesting TSX companies are better prepared to overcome the hurdles of exchange regulators scrutinizing their preliminary prospectuses. Taken together, the evidence is consistent with the view that higher exchange listing standards screen out companies that are less prepared to go public. But the data show exchange listing standards are not directly related to 1-year share price performance and/or trading volume as those performance indicators are more closely connected to observable company-specific factors.

Suggested Citation

  • Johan, Sofia A., 2010. "Listing standards as a signal of IPO preparedness and quality," International Review of Law and Economics, Elsevier, vol. 30(2), pages 128-144, June.
  • Handle: RePEc:eee:irlaec:v:30:y:2010:i:2:p:128-144
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    Cited by:

    1. Bao, Xiaolu & Johan, Sofia & Kutsuna, Kenji, 2016. "Do political connections matter in accessing capital markets? Evidence from China," Emerging Markets Review, Elsevier, vol. 29(C), pages 24-41.
    2. Park, Jong-Ho & Binh, Ki Beom & Eom, Kyong Shik, 2016. "The effect of listing switches from a growth market to a main board: An alternative perspective," Emerging Markets Review, Elsevier, vol. 29(C), pages 246-273.
    3. Otchere, Isaac & Vong, Anna P.I., 2016. "Venture capitalist participation and the performance of Chinese IPOs," Emerging Markets Review, Elsevier, vol. 29(C), pages 226-245.
    4. Douglas Cumming & Sofia Johan & Jeffrey G. MacIntosh, 2017. "A drop in an empty pond: Canadian public policy towards venture capital," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 103-117, March.
    5. Sun, Yue & Uchida, Konari & Matsumoto, Mamoru, 2013. "The dark side of independent venture capitalists: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 279-300.
    6. repec:eee:finlet:v:22:y:2017:i:c:p:146-152 is not listed on IDEAS
    7. Takahashi, Hidenori & Yamada, Kazuo, 2015. "IPOs, growth, and the impact of relaxing listing requirements," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 505-519.
    8. Riccardo Ferretti & Antonio Meles, 2010. "Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs," Venture Capital, Taylor & Francis Journals, vol. 13(1), pages 23-47, September.
    9. Vismara, Silvio & Signori, Andrea & Paleari, Stefano, 2015. "Changes in underwriters' selection of comparable firms pre- and post-IPO: Same bank, same company, different peers," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 235-250.
    10. Douglas Cumming & Sofia Johan, 2013. "The IPO as an exit strategy for venture capitalists: regional lessons from Canada with international comparisons," Chapters,in: Handbook of Research on IPOs, chapter 21, pages 465-502 Edward Elgar Publishing.
    11. Cressy, Robert & Farag, Hisham, 2014. "Stairway to heaven or gateway to hell? A competing risks analysis of delistings from Hong Kong's Growth Enterprise Market," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 195-205.
    12. repec:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9797-7 is not listed on IDEAS
    13. Güçbilmez, Ufuk, 2014. "Why do some Chinese technology firms avoid ChiNext and go public in the US?," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 179-194.

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